The WTO and Regional Agreements on International TradeARTICLE

By Karen Lynch

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Bilateral, regional and multilateral trade talks have become a source of business uncertainty in 2017 – even though their intent is to ease cross-border transactions and international trade flows. U.S. businesses engaged in cross-border trade may find value in understanding the latest trade deal developments.

The first source of uncertainty is that big deals in the making – such as the World Trade Organization’s (WTO’s) Doha Round, the Trans-Atlantic Trade and Investment Partnership (TTIP), the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) – have exhibited an “on-again, off-again” tendency. For another, the sheer number of preferential trade agreements, which provide more favorable market access to members, has multiplied, as bilateral free trade agreements have also proceeded alongside larger international trade negotiations. Over 250 preferential trade agreements involving two or more countries were in force as of mid-2017.1

One example of the resulting challenges for businesses was recently highlighted by the International Chamber of Commerce (ICC), in a statement on rules of origin. “This proliferation of agreements has led to confusing and inconsistent market entry arrangements, which are particularly felt by small and medium enterprises (SMEs) that have fewer resources,” the ICC said, noting such issues as divergent procedures for traders at borders, multiple documentation requirements and other differing standards that can increase business risk and costs. “As new [preferential trade agreements] increasingly overlap existing ones, diverging rules of origin regulations and procedures are becoming a trade barrier along the whole supply chain.”2

International Trade Talks Underway

Trade negotiations have continued to unfold on several fronts. Among the biggest regional trade developments, negotiating partners publicly suggested in mid-2017 that the TTIP talks (between the European Union and U.S.) might resume, after being on hold.3 Pacific Rim negotiators are to decide by November 2017 whether to continue trying to forge the TPP (with participants including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam), without the participation of the U.S.4 December 2017 is the latest extended deadline for completing the RCEP (Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand and Vietnam).5

At a global trade level, some WTO member countries are looking to advance negotiations into new areas such as the facilitation of cross-border investment, when the WTO Ministerial Conference convenes in December 2017. Others seem intent on reviving the overarching Doha Round, which has eluded conclusion for more than 15 years.6 And at the bilateral level, for example, talks opened in May 2017 on an Australia-Hong Kong Free Trade Agreement, following the implementation of a China-Australia Free Trade Agreement in December 2015, with the two agreements presented as complementary.7

Seeking Coherence in Global Trade

WTO rules accommodate bilateral and regional agreements, though non-discrimination is one of its core principles – and even the WTO says that “these deals, by their very nature, are discriminatory as only their signatories enjoy more favorable market-access conditions.”8 Bilateral and regional trade agreements are treated as exceptions, the WTO says, because of their legitimate role in facilitating trade – as long as they follow certain rules, do not raise barriers vis-à-vis third-parties and complement the WTO system, rather than substitute for it.

But don’t feel confused if the preceding paragraph seems to contradict itself. “There is a major contradiction and there is no dearth of economic policy options for countries wanting to follow what suits their economy the best,” according to Geethanjali Nataraj, professor of applied economics and economic policy at the Indian Institute of Public Administration in New Delhi.9

The WTO sounds cautionary notes about overlapping membership in multiple blocs, which could hinder trade flows with multiple sets of trade rules. It has also expressed concern that while many older trade agreements covered only tariff liberalization and related rules such as trade defense (e.g., anti-dumping and anti-subsidy), standards, and rules of origin, newer agreements are expanding into such areas as services rules, investment, competition, intellectual property rights and more. “This could give rise to regulatory confusion and implementation problems,” the WTO says.

Governments such as New Zealand, however, see agreements like the TPP as vehicles for regional economic integration. “TPP would also set a new standard for trade and investment in the Asia-Pacific region, generating substantial long-term economic and strategic benefits for New Zealand and promoting the growth of regional supply chains,” according to the New Zealand Foreign Affairs and Trade.10

WTO Director-General Roberto Azevêdo addressed the matter head-on in a May 2017 op-ed article in the East Asia Forum. “Support for the multilateral trading system does not need to come at the expense of an active bilateral and regional negotiating agenda. It is not a zero-sum game as it is often portrayed,” he said.11

He cited the Asia-Pacific region and the Asia-Pacific Economic Cooperation (APEC) as examples of how regional initiatives can have a positive impact on the WTO’s multilateral system. “There are many other regional and bilateral initiatives being pursued in the Asia-Pacific region that can complement multilateral rules and act as building blocks for the global system.”12

“However, even if all regional agreements could be completed tomorrow, we would still need the WTO,” he said. “Almost none of the global trade challenges we face today, whether related to the digital economy, agricultural subsidies or fisheries subsidies, would be easier to solve outside of the multilateral system.”13

Azevêdo referenced recent WTO achievements such as the Trade Facilitation Agreement, saying that his organization is finding new ways to advance trade in complicated times. “At the end of 2017 the WTO will hold its biennial Ministerial Conference in Buenos Aires — and that could be another important opportunity for progress.”14

Moving from the policy level to the practical level, the ICC recently released recommendations on rules of origin in preferential trade agreements, to ease international trade and reduce trading costs. An example is a call for standardizing procedural requirements to increase transparency and predictability, allowing business processes in global supply chains to be replicated and automated. And from the ICC’s point of view, any preferential trade agreements on this matter should be viewed as steps toward a multilateral WTO agreement.15

The Takeaway

The benefits and challenges of international trade agreements remain a subject of high-level discussion in the policy world and uncertainty in the business world. The WTO is also seeking to establish a workable balance between its multilateral mandate and the proliferating bilateral and regional accords.

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

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